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A fundamental feature of the economic model represented by the wage-setting curve is the persistence of unemployment. The model is structured in a way that implies there will always be some level of unemployment in the economy; the unemployment rate does not reach zero.

Persistent Unemployment in the Wage-Setting Model

In an economic model where the real wage required to motivate workers increases as the level of employment rises, why is an equilibrium with zero unemployment impossible?

In an economic model where the real wage required to motivate workers increases as the level of employment rises, explain why a state of zero unemployment is considered an unstable disequilibrium.

The Impossibility of Zero Unemployment

In an economic framework where the real wage required to ensure worker effort increases as more people are employed, analyze why a situation of zero unemployment is not a stable equilibrium. In your explanation, consider the incentives for an individual worker when everyone who wants a job already has one.

The Inherent Unemployment Equilibrium

In an economic model where a higher real wage is required to motivate workers as employment levels rise, an equilibrium with zero unemployment is impossible because the wage needed to ensure worker effort would become infinitely high.

Based on an economic model where the real wage required to secure worker effort rises as employment increases, analyze the likely consequences of the policy described in the case study on the real wage. Explain why, according to this model, the goal of a sustained 0% unemployment rate is fundamentally unattainable.

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